'Homegrown' CEOs perform best, survey.

• Author: Ladd, Scott
• Position: SUCCESSION - Survey

Do companies that promote chief executives from within fare better in the long run than those that don't? According to a new survey, the answer is"yes."

In a study of nonfinancial companies in the S&P 500 covering a 20-year period (ending in 2007), global management consulting firm A. T. Kearney found that 36 companies that exclusively promoted CEOs from their own ranks routinely outperformed those that didn't in a number of key categories, including return on assets, equity and investment, revenue and earnings growth, earnings per share and stock price appreciation.

The study, conducted with the Kelley School of Business at Indiana University, cited major global corporations in the health care, pharmaceutical, manufacturing and technology sectors, among others, as having benefited from turning to "homegrown" CEOs when the corner office goes vacant.

In addition to superior performance, internal candidates also cost less in the balance. Median compensation (salary, bonus and equity incentives) for external CEOs is 65 percent higher than for those promoted from within, the study found. And 40 percent of the chief executives recruited from outside last only two years or less; nearly two-thirds are gone within four years.

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Paul A. Laudicina, chairman and managing partner of A.T. Kearney, says that"boards of directors often fail when it comes to CEO succession planning."...